I love this expression, it makes me smile when I hear it. I have a Scottish friend who introduced me to the saying. It is used to describe one who is in a daydream, to be in one's own world, deep in thought, staring into space while not staring at anything in particular. I suppose on occasion we've all been 'away with the fairies'.
My photo was taken in the Fairy Garden at Meadowlark Gardens.